US banks have become the unlikely saviours of their ailing European counterparts, signing private agreements to lend them billions of dollars in recent weeks after an exodus of nervous money market funds left many without ready access to short-term funding.
Agreements worth tens of billions of dollars have been signed in the last month alone, according to bankers directly involved, who added that senior management of firms on both sides of the transactions have been closely involved with hammering out deals.
French lenders are among those using such facilities, say bankers, although deals have also been struck with UK and other European firms. Loans have been made as repo agreements, with banks posting assets such as corporate loans and mortgage portfolios as collateral.
“We were able to use some of our assets to get long-term repos,” said one board member at a French bank. “It was a move we made to monetise some of the assets we had on the balance sheet which were good, quality assets, and also to mitigate the withdrawal of money market funds.”
Such deals, struck behind closed doors, show how European banks have been forced to look elsewhere for funding in recent weeks following the partial closure of many traditional sources such as US dollar money markets and unsecured bonds.
US banks are exploiting the inability of European banks to fund themselves in dollars, charging much higher rates than normal – sometimes double that paid to money markets. But they argue they are simply taking “conservative” steps to protect themselves. Assets posted are subject to dramatic haircuts, meaning European banks can only generate cash equivalent to part of their full value.
“Repo markets have always been a source of funding, but the question has always been about whether the price points work for both parties,” said one US banker involved in such deals. “As the [money market] investor base started to shy away from some names, the foreign banks became more interested in getting deals done.”
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Agreements worth tens of billions of dollars have been signed in the last month alone, according to bankers directly involved, who added that senior management of firms on both sides of the transactions have been closely involved with hammering out deals.
French lenders are among those using such facilities, say bankers, although deals have also been struck with UK and other European firms. Loans have been made as repo agreements, with banks posting assets such as corporate loans and mortgage portfolios as collateral.
“We were able to use some of our assets to get long-term repos,” said one board member at a French bank. “It was a move we made to monetise some of the assets we had on the balance sheet which were good, quality assets, and also to mitigate the withdrawal of money market funds.”
Such deals, struck behind closed doors, show how European banks have been forced to look elsewhere for funding in recent weeks following the partial closure of many traditional sources such as US dollar money markets and unsecured bonds.
US banks are exploiting the inability of European banks to fund themselves in dollars, charging much higher rates than normal – sometimes double that paid to money markets. But they argue they are simply taking “conservative” steps to protect themselves. Assets posted are subject to dramatic haircuts, meaning European banks can only generate cash equivalent to part of their full value.
“Repo markets have always been a source of funding, but the question has always been about whether the price points work for both parties,” said one US banker involved in such deals. “As the [money market] investor base started to shy away from some names, the foreign banks became more interested in getting deals done.”
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